The Four Principles of an Enforceable Contract II

The Four Principles of an Enforceable Contract II

Arun Singh

40 years - Corporate Lawyer

In this video, Arun explains the other two main principles of a legally enforceable contract: consideration and the intention to create legal relations. He starts by discussing how a person who wants to have a binding promise must have provided consideration and continues with the last principle, being an intention to create legal relations and the need for it.

In this video, Arun explains the other two main principles of a legally enforceable contract: consideration and the intention to create legal relations. He starts by discussing how a person who wants to have a binding promise must have provided consideration and continues with the last principle, being an intention to create legal relations and the need for it.

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The Four Principles of an Enforceable Contract II

7 mins 23 secs

Key learning objectives:

  • Understand the importance of consideration

  • Outline what intention to create legal relations means

Overview:

For a contract to be legally binding, and therefore enforceable, it needs to satisfy four principles: offer, acceptance, consideration and the intention to create legal relations. Consideration requires the exchange of something of value and to make a contract there has to be a clear intention.

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Summary

What is the importance of consideration? 

Consideration is the exchange of something of value, even if it is not adequate, which is why sometimes there is the concept of the peppercorn rent (an example being including a 1p fee in a contract, purely to satisfy the consideration requirement of contracts). The parties can decide whatever consideration they want. In the sale of a car, the payment of money by the buyer is considered consideration for the promise of the car, delivery of the car by the seller is consideration for the promise of the buyer to pay the seller of the car. 

What is the importance of the intention to create legal relations?

To make a contract, there has to be an intention. If no intention can be shown between the parties, there will be no contract. The criteria that the court has to look at this are to apply an objective test to ask whether reasonable people would regard the agreement as legally binding. 


An intention to create legal relations is presumed to exist in transactions carried out in the course of business between two commercial organisations. 

 

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Arun Singh

Arun Singh

Arun Singh is a lawyer with over 35 years of experience and was a partner at PinsentMasons and KPMGLegal. He delivers public and in-house courses internationally to corporates, banks, sovereign wealth funds, government organisations and universities. He is the co-author of 'How to Lead Smart People', shortlisted for the Business Book Awards and The Chartered Institute of Management Book of the Year.

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